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The Spitzer Effect on Capitol Hill

See related article: "What Else Is Ahead for 2005?" A recurring ritual is underway in our nation's capital. A new Congress, the 109th, is...
February 8, 2005

An Update on Issues of Legislative Importance for PIA Members

By Peter Bizzozero
Assistant Vice President, Federal Affairs
PIA National

See related article:"What Else Is Ahead for 2005?"

A recurring ritual is underway in our nation's capital. A new Congress, the 109th, is officially underway.  While most new Members will be on a steep learning curve getting themselves acclimated to their new duties, the work of Congress is proceeding apace.  On the first day alone, 240 bills were introduced in the House of Representatives.

Fortunately for PIA, our list of issues is a bit more concise.  This year, it is likely that we could see some sort of congressional action on several issues of importance to agents.

Two holdovers from the last Congress are extension of the Terrorism Risk Insurance Act (TRIA), and insurance regulatory reform as embodied in what is known as SMART, the State Modernization and Regulatory Transparency Act.

One new and extremely important issue has emerged - the investigation into insurance broker practices by New York Attorney General Eliot Spitzer and others, and how it might affect federal legislation.

TRIA Renewal

Of our big issues, TRIA is most likely to see real action this year. The law is scheduled to expire on December 31, 2005.  During the final days of the 108th Congress, it looked like legislation extending TRIA for two years was close to passing, but that didn't happen.

PIA supports extending TRIA for two years, but renewal is by no means a slam-dunk. The industry must overcome the perception that a TRIA extension is nothing more that an insurance industry bailout.    During the year, I think we will see a series of hearings and debate on legislation. If action comes, it won't be before late in the year.

A Start on SMART

In August 2004, House Financial Services Committee Chairman Mike Oxley (R-Ohio) and Capital Markets Subcommittee Chairman Richard Baker (R-Louisiana) released a discussion draft of the State Modernization and Regulatory Transparency Act (SMART) with the goal of holding a mark-up before the end of the year. That mark-up never occurred.

Despite being pleased with many of the provisions included in the discussion draft, PIA decided to withhold any blanket endorsement of SMART right away.  PIA has always opposed any kind of optional federal charter and, while this bill does not provide for one, the current draft contains provisions problematic for PIA.

Hearings are likely this year. Passage is a long shot, but not impossible.

The Spitzer Effect

Anytime there are screaming headlines in the newspapers that use the word "scandal," proposals for legislative fixes - good ones and bad ones - are not far behind.

Such may be the case with the investigation conducted and the lawsuits filed by New York Attorney General Eliot Spitzer alleging bid-rigging by a few players at insurance mega-brokerages.

Some who would like to see a federal takeover of all insurance regulation have seized upon the Spitzer actions to attempt to argue that state regulation has failed.  PIA vehemently disagrees with this assertion.  In point of fact, the alleged abuses detailed by Mr. Spitzer, in conjunction with former New York Insurance Commissioner Gregory V. Serio, demonstrate that state insurance oversight is working quite well.

But that will not deter supporters of federal regulation or an optional federal charter. The existence of the SMART draft and the commitment by legislative leaders to advance insurance regulatory reform will serve as a magnet for those seeking to use the Spitzer affair to exert influence on the reform process.

So far, post-Spitzer reform efforts are focused at the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL). Both have draft model laws headed to state legislatures.  Despite the fact that PIA has come out against the NAIC model and will oppose it in the states, we still believe that is exactly where such issues need to be decided - not on Capitol Hill in Washington, D.C.

But there will be action on Capitol Hill.

Fortunately for us, congressional staff - at least those on the House Financial Services and Senate Banking committees - are very good about "getting the whole story." The headlines generated from this issue are alone enough to prompt some sort of action.  Most likely, we will see a series of hearings in both the House and Senate.

The real problem I see with this issue over the next year is the shadow of distrust it has cast over the entire insurance industry, and the effect that will have on other key industry issues like TRIA.  As an industry, we must be very diligent in fighting this perception. Now more than ever, a strong presence on Capitol Hill and with individual Members of Congress will be critical to accomplishing our goals.

Peter Bizzozero is assistant vice president of federal affairs for PIA National.

PIA Connection

This article originally appeared in the January 2005 PIA Connection.